The Shale Daily Update – 6.16.2020

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Saudi Arabia is threatening to ignite another global oil price war if cheating participants in the OPEC+ deal continue to exceed their quotas.

What You Should Know About Oil and Gas Today

The Big Story

The Big Story today has to obviously be BP’s announcement of a major write-down in its asset values to be included in its 2nd Quarter earnings. The company’s management notified investors yesterday that it the write-down would come in at between $13 and $17.5 billion. This would represent the oil and gas industry’s largest write-down since BP itself took a hit of $33 billion in the wake of the 2010 Deepwater Horizon disaster.

BP’s management attributes most of the write-down to what it believes will be the long-lasting impacts on crude demand from the COVID-19 pandemic, and to its long-term preparations to meet the demands of the “energy transition” away from fossil fuels towards a more renewables-heavy energy mix. It will be interesting to see if other majors and corporate independents follow BP’s lead in the months to come.

The State of Play

Oil prices are popping up again today on more positive U.S. economic news, led by this morning’s announcement that U.S. retail sales leapt by 17.7% in May, far outstripping the 8% jump anticipated by a consensus of the “experts.” Why are the experts always so wrong? It’s an interesting question.

So, will prices fall back, remain steady, or continue to rise? Rigzone has an interesting piece quoting analysts with varying opinions on that outlook. It just shows you how unpredictable oil markets really are.

The U.S. Energy Information Administration’s numbers are catching up to reality. The agency said yesterday that overall U.S. production had dropped from 13.1 million bopd in early March to just 11.1 million bopd as of June 5. You can expect the latter number to be revised downwards in the weeks to come as the full magnitude of domestic oil production losses comes into further clarity.

The EIA also quietly raised its forecast for global crude demand yesterday to 91.7 million bopd, an increase of 500,000 from its previous report. Expect that forecast to be further revised upwards in the weeks and months to come.

We have seen this report before, haven’t we? Reuters is reporting today that Chesapeake Energy will file its long-anticipated chapter 11 bankruptcy “as soon as this week.” Pretty sure we have heard the same thing every week for the past two months. I suppose some day it will actually happen.

Here’s a big story that has been a long time coming for the state of Louisiana. As reported by the Baton Rouge Advocate, The state is getting a $135 million federal grant to build about eight miles of elevated highway on flood-prone La. Hwy. 1 between Leeville and Golden Meadow in far south Louisiana, U.S. House Minority Whip Steve Scalise announced Monday.

For those who are not familiar with it, LA Highway 1 is the main road down to Port Fourchon, the port that serves as the staging area for the vast majority of oil and gas operations that take place in the Gulf of Mexico. Just 20 years ago, this road was a shoulder-less two lane highway that made the moving of giant pieces of offshore oil equipment a truly harrowing experience, a fact that I was able to witness first-hand on several occasions.

This key energy corridor has already been the target of multiple expansion and improvement projects over the past two decades, but still suffers from flooding during heavy rains that occur frequently in the lowlands of South Louisiana. So this grant will be welcome news to the residents of that area and to the offshore oil and gas industry.

That’s all for today.

 

 

 

 

 

 

 

 

 

 

 

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